Monday, July 18, 2016

These 6 Charts Tell You Everything You Need to Know About the Real Estate Market

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In a nutshell these 6 charts help to visualize the major impact housing has on our economy.

These 6 Charts Tell You Everything You Need to Know About the Real Estate Market

By Chris Matthews

The housing market has done a lot of healing, but it also has a long way to go.

There’s likely no sector as important to the U.S. economy as housing.

In the first quarter of 2016, residential investment accounted for roughly half of the 1.1% increase in real GDP. Historically, this is on the high side, but when you count spending on housing services as well as spending on various kinds of housing construction, the home construction industry can account for as much as one fifth of overall output in the U.S. economy.

That’s why housing has traditionally powered the American economy out of recessions, and that’s why housing’s role as the trigger of the Great Recession was so damning to the subsequent recovery.

While housing prices have improved—with home values in some markets higher than before the crisis—there’s evidence that the housing bust has inflicted long-term damage on the home building industry and therefore the American economy. Here are 6 charts from Torsten Slok, Deutsche Bank’s Chief International Economist, that show the state of the housing market and how it’s powering, and holding back, the rest of the economy.

People Really Want to Buy Homes

There’s evidence that the millennial generation has been slow to warm to the idea of homeownership, as they are generally delaying decisions like marriage and child rearing. But as this chart shows, overall, Americans are still in the market for new homes.

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But Homebuilders Have Been Slow to Respond to Demand

The rate at which homebuilders are constructing new single family homes remains quite depressed, despite steadily increasing demand. Those in the business have argued that supply-side factors, like increased regulation and a short supply of skilled labor as reasons they have been slow to meet demand.

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The Homes Being Built are Mostly for the High End of the Market

There are many metrics that one can use to show that homebuilders have decided that it makes sense for them to target wealthier buyers, but the above chart is striking. During an otherwise sluggish economic recovery, the increase in the size of new homes for sale has actually accelerated.

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Because Middle-Class Homebuyers Can’t Get Financing

Home builders aren’t the only business that has been turning it’s back on the American middle, for the simple reason that middle class incomes have been on the decline for years now. Furthermore, the mortgage finance industry is still leery of lending to all but the most creditworthy borrowers.
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Rental Markets are Tighter Than They’ve Been in Generations

The lack of credit available for new homebuyers has forced more and more homeowners into the rental market, driving up rents and put further pressure on already strained middle-class budgets.

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Hope springs eternal.

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Despite what appears to be a negative feedback loop of stagnating middle-class incomes, tight credit, and a homebuilding industry that can’t profitably cater to most of the country, demographics have analysts hopeful that things will turn around in the future. The modal age in America is 26, and this echo-boom generation has yet to settle down and seriously consider homeownership. Analysts hope that this new demographic wave will jolt the housing sector back into pre-bubble normalcy. And we’re moving in the right direction.

Time heals all wounds, even in the real estate market.


Thursday, July 14, 2016

Why home prices in Southern California keep climbing

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Why home prices in Southern California keep climbing 

Real estate is a hot commodity these days especially in Southern California. It boils down to the pent up demand and lack of inventory, scarcity of land to build, continued low mortgage interest rates and improving job outlook. All these factors play into the surging home prices with no let up in sight especially as markets reach or even surpass their previous historical peaks.

The Southern California housing market is red-hot again.

By James F Peltz - July 14, 2016

Home prices in the region have been climbing steadily, as they have nationwide, toward record levels not seen since the 2008 housing crisis plunged the country into a severe recession.

The S&P/Case-Shiller home price index, a widely followed gauge of the market, showed that prices in the Los Angeles market in April stood at their highest point since October 2007.

The median home price in Orange County in May was $651,500, surpassing its bubble-era peak reached in 2007, according to the real estate data firm CoreLogic.

Interest rates of about 3.5% or less for 30-year, fixed-rate mortgages  not far off the all-time low of 3.31% in November 2012  have helped fuel the gains.

Dana Kuhn is a lecturer at the Corky McMillin Center for Real Estate at San Diego State University, and we asked him to summarize the market and what it means for would-be buyers and sellers. Here’s an edited excerpt:

Has the Southern California housing market completely recovered from the recession?
In the most desirable markets, that’s essentially true. That would be West Coast large-metro areas. The San Francisco Bay Area is now priced above its peak numbers of the last decade. Orange County, too, and Los Angeles and San Diego are getting very close to their former peaks. Seattle is doing really well. Portland is doing well.

One of the worst-hit areas in the housing crisis was the Inland Empire. How is that region faring?
That was the real subprime [mortgage] disaster area. Those markets have been slower to recover. There are areas like the Inland Empire that are probably only between 80% and 85% of [their pre-bubble] peak.

Is it surprising that it’s taken this long?
Yes and no. Given how severe the recession was, there was so little production [of new housing] in that time. There was a four-year period between September 2008 and September 2012 when the nation’s housing starts were below all previous troughs going back some 40 years. And in those previous troughs, what you typically had was one year at that nadir, and then you’d climb back up fairly quickly. But we had four years below all of those troughs, and so production obviously fell behind demand.

So there was a huge pent-up demand when people started getting jobs and believing in housing again. The industry has struggled to keep up with it in the more desirable markets.

Is that driving the surge in prices?
Yes. Like most things, it’s a supply/demand situation. The number of [housing] starts hasn’t been able to take care of that pent-up demand. The pricing has gone up accordingly, and that has been accommodated by low [mortgage] interest rates. Continued low interest rates have in essence subsidized a rapid ascent in pricing.

Why is it tough to add more housing to the supply in Southern California?
Land is increasingly scarce, and that’s forcing people to build up rather than out. And those higher-density projects are more sensitive politically, more difficult to get approved and take longer to get through the pipeline. You can have agreement about needing more housing in a given market, but when it actually comes down to [building] those 300 units on that corner in that neighborhood, you get resistance. So it can take years in Southern California coastal areas to get [those] projects approved. That’s true whether it’s a for-sale product or a rental market.

This all sounds good for sellers, but is it a tough time to be a buyer?
Yes. Unfortunately real [inflation-adjusted] wage growth hasn’t kept up with that surge in pricing. It’s significantly harder to buy something now than it was a few years ago because people’s wages just haven’t kept up, even though interest rates are still the same.

The median price of a house in Los Angeles County is above a half-million dollars. How does a first-time buyer afford that?
They don’t buy that house. That’s the middle of a statistical group. Your first-time buyer is pretty much forced to buy a [less-expensive] attached product, not detached.

Like a condominium?
Yes. And they’re probably not going to be able to afford to buy that unit in the same neighborhood in which they would rent if they were renters. So they have to make a lifestyle concession in order to become homeowners.

Meaning they would build up equity in that house, then later sell it in hopes of buying one in the neighborhood they desire?

Right. Also, the millennial generation [18 to 34 years old] has eschewed the concept of home ownership because they saw their parents and others get burned in the last downturn and because they prefer lifestyle over ownership.

But as they get older and have kids they’ll have a different outlook. And as their wages increase, they’re also going to realize the importance of the mortgage deduction  the tax benefits that come from home ownership  and there will be move back toward home ownership.

Do you see prices continuing to climb?
The peak value in any given cycle has always exceeded the peak value in the previous cycle. So there was no question in my mind  even during the depths of the downturn  that we would get back to peak [price levels] because we always have. It’s only a question of how long it takes to get there. Of course it took quite a long time this time because [the recession] was so bad.
The only question is how many more years of increases beyond that peak can you expect? I don’t know anyone who can tell us that.


Wednesday, July 6, 2016

Foreign buyers flood US real estate, but buy cheaper homes

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While the dollar volume of sales decreased, number of homes purchased actually increased most likely due to the changing demand for locations of homes.While previous international buyers have mainly purchased in expensive locales they are now expanding to less expensive areas as well. Chinese buyers still rank the highest investors followed by Canadian buyers. Given today's volatility in global financial markets, real estate is still one of the safest investments available.

Foreign buyers flood US real estate, but buy cheaper homes

Diana Olick - 7 hours ago

Chinese investors negotiate at the US-China Real Estate summit & trade fair in Beijing. (File photo). 

Chinese investors negotiate at the US-China Real Estate summit & trade fair in Beijing. (File photo).

The appetite for U.S. real estate continues to flourish, but international buyers are shifting their sights from luxury to less-pricey properties. This may be due to overall higher home prices, along with a stronger U.S. dollar, which both cost foreign buyers more at the negotiating table. There are also fewer nonresident foreigners investing in the market.

"Weaker economic growth throughout the world, devalued foreign currencies and financial market turbulence combined to present significant challenges for foreign buyers over the past year," said Lawrence Yun, chief economist of the National Association of Realtors (NAR). "While these obstacles led to a cool down in sales from nonresident foreign buyers, the purchases by recent immigrant foreigners rose, resulting in the overall sales dollar volume still being the second highest since 2009."

Foreign buyers purchased $102.6 billion of residential property in the U.S. between April 2015 and March 2016, according to NAR's annual report on international activity in U.S. real estate. That is a 1.3 percent decline in dollar volume from the previous survey. The number of properties purchased, however, rose 2.8 percent to 214,885. The value of homes bought by foreigners was typically higher than the median price of all U.S. homes.

"The slight drop in dollar volume can probably be accounted for based on the types of properties purchased, and the locations of many of those properties. We've seen at least some evidence that foreign buyers — both investors and people just looking for a home — have begun looking beyond expensive markets like San Francisco, New York City and Washington D.C., and buying properties in smaller, less-expensive cities in the Southeast and Midwest," said Rick Sharga, executive vice president at Ten-X (formerly, an online real estate marketplace .

Another major shift was in the makeup of international buyers. Chinese purchasers continued to outpace all others, with their dollar volume exceeding the total of the next four ranked countries combined. Their dollar volume of sales, at $27.3 billion, was a slight decrease from last year's survey but was still three times as much as Canadian buyers, who were ranked second. Chinese buyers also bought the most expensive homes at a median price of $542,084.

"Although China's currency modestly weakened versus the U.S. dollar in the past year, it's much stronger than it was five to 10 years ago, thereby making U.S. properties still appear reasonably affordable over a longer time span," wrote Yun in the report.

Given today's volatility in global financial markets, real estate is one of the safest investments available. U.S. real estate in particular is relatively inexpensive compared to properties in Asia.

"The explosive growth of the Chinese economy created a very large number of very wealthy people.

As that country's economy has slowed down, those individuals are looking for better investment alternatives, and many have concluded that U.S. real estate is a smart bet," added Sharga.

London had been a favorite of foreign investors, but the impact of the Brexit vote is already hitting the housing market there. Buyers from the United Kingdom were the fourth-largest consumer of U.S. real estate in the data that was gathered before the Brexit vote.

"Sales activity from U.K. buyers could very well subside over the next year depending on how severe the economic fallout is from Britain's decision to leave the European Union," added Yun. "However, with economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability."

As for U.S. destinations, five states accounted for half of foreign buyer purchases: Florida, (22 percent), California (15 percent), Texas (10 percent), Arizona and New York (each at 4 percent). Latin Americans, Europeans and Canadians, who historically favor warmer climates, were most prevalent in Florida and Arizona. Asian buyers flocked to California and New York. Texas was more a mix of buyers from Latin American, the Caribbean and Asia. Texas may be more of an investment play, as demand for single-family rentals there remains strong.

Sales to nonresident foreign buyers fell to the lowest dollar volume since 2013. Shares to foreign residents increased. The shares had been evenly split, but higher home prices and the depreciating value of foreign currencies likely played into that dynamic.

"Led by Venezuela (45 percent) and Brazil (24 percent), at least eight countries, including China and Canada, saw double-digit percent increases in the median sales price of a U.S. existing home when measured in their country's currency," added Yun.



Saturday, July 2, 2016

Brexit could prove advantageous for borrowers in real estate market

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The Brexit vote has directly impacted interest rates in the United States. This summer is a good time to shop for a home mortgage as analysts are predicting rates may drop even further. Good opportunity for those who are home shopping, looking at real estate as an investment or looking to refinance their existing home loans.

Brexit could prove advantageous for borrowers in real estate market

Posted: Friday, July 1, 2016 12:00 am By RHETT MORGAN World Staff Writer

Married and a father of four children, including a newborn, Tulsa’s Mike Guillen was seeking ways to save money.
A refinancing opportunity gave him one.

Guillen this week secured a 15-year, fixed-rate of 2.87 percent on his home near 101st Street and South Memorial Drive, a drop of more than one point from his previous rate.

“It was just too good of a deal to pass up,” said Guillen, who works for a local heat-and-air company. “I was floored.”

He purchased his family’s 3,300-square-foot home about seven months ago.

“After looking at the math — because I was going to do the house pay-down account — I’m going to come out more ahead by having a low interest rate than I would have by putting the money in the bank and trying to earn on it,” Guillen said.

In the wake of the United Kingdom’s decision to leave the European Union, stories such as Guillen’s could become increasingly more common.

The move, also known as Brexit, has some analysts predicting that rates could drop even further.
“The latest statistic I saw is that we are in a three-year low of interest rates again,” said Ed Adams, who leads the retail mortgage channel for Tulsa-based BOK Financial Mortgage.

“We continue to be in a place where there are historically low interest rates, which presents a real good opportunity for buyers who are thinking about home ownership or refinancing or move-up opportunities or real estate as an investment.”

Thirty-year, fixed-rate mortgages have been hovering in the 3.5-percent range, he said.

“People still believe you need a 20-percent down payment to buy a home when you look at national surveys,” Adams said. “The truth is, there is a lot more opportunity. There’s a lot more product available to help with low down payment-type loans and options to get into home ownership.

“The continued pressure to keep interest rates down and what recently happened with Brexit is certainly providing opportunity for people to think about real estate as an asset and a part of their total net worth.”, which puts out a weekly mortgage rate trend index, found that almost half of the experts it surveyed believe rates will remain relatively unchanged in the coming week while a third believe they will fall further.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average plunged to 3.48 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.56 percent a week ago and 4.08 percent a year ago.

Since the beginning of the year, the 30-year fixed rate has plummeted nearly 50 basis points. (A basis point is 0.01 percentage point.) It has fallen 18 basis points in the past month alone.

The 15-year fixed-rate average sank to 2.78 percent with an average 0.4 point. It was 2.83 percent a week ago and 3.24 percent a year ago.

The five-year adjustable rate average dropped to 2.70 percent with an average 0.5 point. It was 2.74 percent a week ago and 2.99 percent a year ago.

“In the wake of the Brexit vote, the yield on the 10-year U.S. Treasury bond plummeted 24 basis points,” Sean Becketti, Freddie Mac chief economist, said in a statement. “This week’s survey rate is the lowest since May 2013 and only 17 basis points above the all-time low recorded in November 2012. This extremely low mortgage rate should support solid home sales and refinancing volume this summer.”